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PVR Partners, L.P. (NYSE:PVR)

Q3 2013 Earnings Call

October 24, 2013 11:00 am ET

Executives

William H. Shea - Chief Executive Officer of Penn Virginia Resource GP LLC, President of Penn Virginia Resource GP LLC and Director of Penn Virginia Resource GP LLC

Bruce D. Davis - Executive Vice President of Penn Virginia Resource GP LLC, General Counsel of Penn Virginia Resource GP LLC and Secretary of Penn Virginia Resource GP LLC

Mark D. Casaday - Executive Vice President of Penn Virginia Resource Gp Llc and Chief Operating Officer—Midstream of Penn Virginia Resource Gp Llc

Analysts

Sunil Sibal - Citigroup Inc, Research Division

Sachin Shah

Operator

Good morning, and welcome to the PVR Partners Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Bill Shea, please go ahead.

William H. Shea

Thanks Jessica. Good morning everyone, thanks for joining us today on the PVR Partner's third quarter earnings call. With me today are Rob Wallace, our CFO; Bruce Davis our General Counsel; Mark Casaday, the Chief Operating Officer of our Midstream Businesses; Keith Horton, the Chief Operating Officer of our Coal and Natural Resources Business Segment; and Steve Milbourne, who heads up our Investor Relations efforts. Bruce, if you'd provide us with the forward-looking statement.

Bruce D. Davis

Thanks, Bill. In the course of our remarks and the subsequent Q&A session, we may be making some forward-looking statements. For purposes of facilitating a good discussion, I'll refer you to the forward-looking statements as referenced in this morning's press release, noting that our business is subject to a variety of risks and uncertainties. For a fuller discussion of these and other risks that could cause our results to change, please see PVR's Form 10-K most recently filed with the SEC.

William H. Shea

Thanks, Bruce. Before we get started discussing our results, let me say that I know that many of you have had a great deal of interest -- have a great deal of interest in our pending merger with Regency Energy Partners. As we indicated in the conference call following the transaction announcement, the primary factors driving the merger were increased scale, business and basin diversification, as well as increased financial capability and flexibility. I strongly believe that the combination will be a good one for both PVR and Regency unitholders.

The proxy statement will provide more information about the transaction including the process and the factors considered by the PVR Board of Directors. As such, I'm not going to discuss the merger further today, and ask that you wait for the proxy to be filed for more details.

Over the third quarter, the Board of Directors declared a quarterly distribution of $0.55 per unit, which is unchanged from the second quarter and is 1.9% increase over the distribution paid with respect to the third quarter of 2012. The distribution is payable on November 13, to unitholders of record on November 6.

For the third quarter, PVR suggested -- generated adjusted EBITDA of $79.9 million, versus $61.2 million last year and $76.1 million last quarter. Distributable cash flow was $49.5 million, versus $36.6 million last year and $49 million in the second quarter of 2013.

Average total natural gas throughput during the quarter from our Eastern and Midcontinent systems was 1.8 Bcf per day, versus 1 Bcf per day last year and 1.7 Bcf per day last quarter. During the quarter, we did sell our 25% membership interest in the Thunder Creek gas services, a joint venture that gathers and transports coalbed methane gas in Wyoming's Powder River basin.

Total proceeds from the sale were $58.6 million resulted in a reported gain of $14.3 million, which was recorded in other revenues and was excluded from our calculation of adjusted EBITDA and distributable cash flow.

We're pleased with our third quarter results. The Eastern Midstream segment showed progress in both volumes and EBITDA over last year and last quarter, And our Midcontinent segment benefited from improved commodity prices with similar volumes compared to the last quarter. And our coal segment, performed in line with our expectations. Specifically in the East adjusted EBITDA was $43.5 million, versus $21.4 million last year and $38.1 million in the second quarter. And volumes increased from 1.4 Bcf a day, versus $600 million cubic feet a day last year, and 1.3 Bcf per day last quarter. Although our volumes were up over last quarter, they could have been stronger except for relatively low natural gas cash prices on Transco's lighting and that Tennessee's 300 lines relative to Henry Hub for a portion of the quarter.

Lower cash prices in the Northeast caused some of our producers to curtail a portion of their production in response. We estimate that lower natural gas prices in Northeast Pennsylvania during this period impacted our average quarterly volumes by as much as 100 million cubic feet per day.

Producers continue to be active in our Eastern areas of operations, however, we've not seen a material change in drilling activity. The rig count has been stable most of the year and that continued during the third quarter. Our most recent rig activity information shows 8 rigs within our areas of dedication, and another 36 rigs operating within our operating areas for a total of 44 active rigs. These counts include 5 rigs in the Utica, 1 of which is within our AOD with Hess.

As noted in the press release, we had 25 well connects in the east during the quarter, and have connected a total of 68 wells for the year through September 30. We expect to connect an additional 36 wells during the fourth quarter, for a total of 104 for the year. Of the 36 wells expected to be connected in the fourth quarter, 14 have been completed and are waiting on pipe and 22 are in various stages of drilling and completion.

Other activity in the East included the completion of 2 new compressor stations, which will help to maintain our volumes on the Hopenay [ph] system and will increase our capacity into Tennessee Gas Pipeline from our Wyoming system.

In July, we placed in service an additional phase of the Lycoming gathering system for which Inflection Energy is the primary producer. And during the quarter PVR completed and placed in service a new water truck loading facility which will significantly expand our service territory the reach for water service to natural gas producers. As you know, we're also very excited about our recently announced Utica project with Hess. Significant progress has been made on the requisite environmental studies, permitting system engineering, and right of way work, as well as commercial discussions with other potential shippers on the system. As previously announced, we plan to start service on the Utica system late next year, at the end of 2014.

In the Midcontinent, EBITDA for the quarter was $17.1 million versus $13 million last year and $14.9 million last quarter. Throughput was $381 million cubic feet a day versus $410 million cubic feet a day last year and $382 million cubic feet a day last quarter. Again drilling activity has been fairly strong in our areas of operations. During the quarter we connected 39 new wells, and currently expect to connect an additional 50-plus wells during the fourth quarter.

On the coal and natural resource business segment, we produced EBITDA of $19.3 million, versus $26.8 million last year, and $23.1 million last quarter. Coal royalty tons were $5.7 million, $5.7 million tons in the quarter versus 7.7 million tons last year and 6.9 million tons last quarter. Coal royalty revenue per ton was $3.66 this quarter, versus $3.73 last year and $3.37 last quarter. During the third quarter, we invested $76.9 million on internal growth projects in our midstream segments, $64.8 million in the East, and $12.1 million in the Midcontinent. We also spent $4 million on maintenance CapEx during the quarter.

As of September 30, we had borrowings of $332.5 million on our $1 billion revolver, and a leverage ratio of 4.9x based on bank compliance EBITDA, which includes a material project adjustment. At this time I'm going to turn the call back to the operator for Q&A. Jessica?

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Sunil Sibal with Citigroup.

Sunil Sibal - Citigroup Inc, Research Division

I just wanted to -- for you to kind of elaborate on the impact of the gas price weakness with regard to your volumes in the 2 trunklines.

Mark D. Casaday

This is Mark Cassidy, as Bill stated earlier, we estimate that over the quarter the volume shortfall due to the Ladyline and Tennessee 300 price reduction as compared to Henry Hub to be about 100 million cubic feet a day.

Sunil Sibal - Citigroup Inc, Research Division

Any breakup of that, these are as your 2 main systems?

Mark D. Casaday

No At this time, I don't have a breakup between the Wyoming system and the Lycoming system.

Sunil Sibal - Citigroup Inc, Research Division

Okay, and then as you look forward to next year, do you have a early view on how many well connects do you plan to see on your system in 2014?

Mark D. Casaday

We're in the process now of talking to all of our producers, so I don't think we'll be prepared to give you a number right now. But producers are going through their budget processes as well, so we will find out over the next couple of months exactly what their plans are for 2014. So we don't have a firm number right now for you.

Operator

Next question comes from Sachin Shah with Albert Fried.

Sachin Shah

So just want to get an update, since announcement, the government shutdown and the back to work supposedly, so just wanted to find out on the HSR filing any kind of update on that, has that been made, any kind of expectation on when that's going to be done as well as the proxy?

Bruce D. Davis

This is Bruce Davis. We expect to make the HSR filing within, prior to next 1 week or two, and the proxy sometime in early November. At this point we're still anticipating a first quarter 2014 close on the transaction.

Sachin Shah

Okay, early part, first quarter or?

Bruce D. Davis

Well, that will all depend on the SEC review and other factors, so at this point we're just speaking about the first quarter.

Operator

[Operator Instructions] With no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Shea for any closing remarks.

William H. Shea

Thanks, Jessica. Thanks everyone for listening in this morning. And we will talk to you again after the fourth quarter. Thanks very much, have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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